3.4 Lenovo: Internationalization through joint ventures and acquisition

BOX 3.4 Lenovo: Internationalization through joint ventures and acquisition

Since its inception in 1984, Lenovo has grown into one of the world’s major information and communication technology manufacturing players. It started producing personal computers (PCs) in 1991, and, through collaborations with well-established software and hardware firms such as Microsoft and Intel, it grew into China’s leading PC maker (as measured by number of PCs shipped) in 1996 and attained 17.9 percent of China’s PC market. In 1999, it became the largest PC seller in the Asia-Pacific region (excluding Japan); however, it was still focused exclusively on the domestic market.

In 2004, Lenovo began its first successful internationalization effort when it acquired IBM’s PC division. Lenovo had been feeling pressure to internationalize because of potential threats in its home market, particularly since China’s accession to the World Trade Organization in 2001, and it had tried to sell its PCs outside of China without success. In late 2004, the company decided to acquire IBM’s PC division, which tripled its worldwide share in the PC market and made it the third-largest PC maker in the world. Importantly, Lenovo acquired IBM’s successful “Think” brand and gained access to a huge distribution network spanning 150 countries. As part of the transaction, IBM and Lenovo entered a strategic alliance that specified IBM as the preferred provider of leasing, financing, and after-sales services for Lenovo products. In return, IBM granted Lenovo exclusive access to its distribution network; in other words, it agreed to supply Lenovo PCs exclusively throughout its boundary-crossing network of 150 countries and 30,000 employees. Acquiring IBM’s PC division gave Lenovo a head start at positioning itself globally, both in establishing a global distribution network and in gaining rapid brand awareness.

From 2005 to 2015, Lenovo chose repeatedly to grow via acquisitions, joint ventures, and alliances. This growth enabled it to become the largest PC maker in the world and to achieve a global market share of nearly 17 percent. In 2011, it formed a strategic alliance and joint venture with the Japanese electronics giant NEC. Through the partnership, NEC intended to benefit from Lenovo’s considerable buying power and efficient global supply chain and to greatly expand its product lines and market access. Lenovo, for its part, gained extended access to Japan’s highly isolated PC market. As part of the strategic alliance, NEC and Lenovo founded a joint venture called NEC Lenovo Japan Group in which Lenovo holds a majority stake of 51 percent. In the same year, Lenovo acquired the German PC maker Medion with the aim of rebalancing its business and reducing its overreliance on its home market. The acquisition united Medion’s expertise in marketing, sales, service, and retail activities with Lenovo’s manufacturing and supply chain capabilities.

After a successful internationalization process, Lenovo now designs, develops, manufactures, and sells PCs, tablet computers, smartphones, workstations, servers, electronic storage devices, information technology management software, and smart televisions; and it remains the world’s largest PC vendor by unit sales.

Source: Adapted from Schmid and Polat 2018. Note: See chapter 10 of this report for more details on how outward investment and research and development helped the development of the digital economy in the Republic of Korea, India, and China.

This chapter illustrates the various ways in which firms participate in GVCs, explores which firms manage to internationalize, and discusses the effect GVC participation has on firm learning and competitiveness. It finds that MNCs are critical to helping firms in developing countries access GVCs, exposing these firms to more advanced technologies and production processes (which may foster technological upgrading),